Senate passes Inflation Reduction Act: why does it matter for EV investors?

EV stocks ended in the green on Monday after the U.S. Senate passed the Inflation Reduction Act of 2022. “House” will now vote on it this Friday.

How does the bill help the EV space?

The proposed legislation offers a $7,500 tax credit on new EVs through 2032, so long that they don’t excessively use materials/components sourced from outside of the U.S. and its trade partners.

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Evidently, the idea is to increasingly make the United States self-sufficient in producing electric vehicles. On CNBC’s “Squawk Box”, Neuberger Berman’s Jonathan Bailey said:

The bill actually tries to look at energy security. It puts in place incentives to bring some of the Lithium [and other minerals] production and manufacturing back to America. It’s trying to address some of those fundamental supply chain challenges.

Unlike before, the Inflation Reduction Act now covers fuel cell electric vehicles as well.

Inflation Reduction Act will boost EV adoption

Interestingly, the bill disqualifies electric cars with an MSRP of more than $55,000 (over $80,000 for electric vans, pickup and SUVs) to incentivize “affordability”. Bailey added:

This is beginning to make this affordable for the middle classes. It’s going to turbo change investment into the renewables and will unlock the potential of renewables to come through to the end consumer in EVs and ramp up adoption.

Naturally, the EV stocks stand to benefit from that increase in adoption.

The legislation also disqualifies single filers with adjusted gross income of more than $150,000 and enables those eligible to use the tax credit as part of the down payment to reduce the upfront cost, which further speaks to its focus on affordability.